It all Started with Frictionless, but Will SAP’s Global SaaS Strategy Pay Off?

When a person goes through an organ transplant, they're given significant doses of various drugs to help insure that their body does not reject its newfound lease on life. The same could be said of enterprise software companies going through similar transplants. I recently came across this article from Managing Automation that summarizes SAP's new SaaS-based software strategy for the Global 2000. While some of the areas in which these newfound SaaS offerings are focused do not compete directly against existing SAP on-premise solutions (e.g., e-sourcing), others do (e.g., BI, CRM).

Regarding SAP's overall SaaS strategy, Managing Automation covers John Wookey's recent statements -- John runs the group and is ex-Oracle -- from a conference in Amsterdam noting that SAP "plans to roll out a series of SaaS products for large enterprises that integrate tightly with SAP's on-premise Business Suite and run on the Java-based on-demand platform that SAP acquired along with Frictionless Commerce in 2006." What's also interesting is that "SAP will concentrate on selling the SaaS offerings to existing users of its business suite rather than new accounts". In other words, SaaS is one of the ways that SAP plans to salvage existing customer revenue streams as broader upgrades are put on hold.

But to me, the most fascinating part of this story is how the Frictionless platform lives on. Earlier this year, I covered this story on Spend Matters first, suggesting, "while the Frictionless name no longer exists, the platform certainly does (after countless additional hours of investment)". The situation is all the more remarkable considering that "in 9 cases out of 10 a few years into an acquisition of what would become a core application asset, you would think the acquiring company would take the codebase and rewrite it onto their own stack/platform. But SAP has gone down the opposite direction, embracing the Frictionless platform and using it as the foundation for a range of new development initiatives. In fact, SAP's E-Sourcing code base (based on Frictionless) now supports their entire On-Demand platform strategy except their Carbon Trade application."

As I wrote at the time, the new SaaS suite includes "E-Sourcing, CLM, CRM, BI On Demand today and HCM and expense management tomorrow". And "to make this possible, SAP has spent thousands of development hours enhancing the frictionless code and separating out the platform layer from the underlying application. Still, the code base dates back to the Frictionless days. In a twist of HR irony as most people who work for acquired companies end up leaving a year or two into a deal, many of the original Frictionless technology team members are left. This includes the head of development, the solution managers, etc. To this date, the Frictionless code remains autonomous inside the SAP development juggernaut. According to one source who is very close to the platform, they pump the same amount into developing and maintaining the code and platform every 18 months as the original acquisition cost. And currently, they're more than doubling down on that number."

And that, my friends, is a SaaS development success story if there ever was one. But the big question on everyone's mind right now is whether or not it will provide the type of commercial payback that SAP needs to make-up for delayed ERP upgrade cycles.